By Rachel Louise Ensign and Allison Prang
BB&T Corp. struck a deal to buy SunTrust Banks Inc. for
$28.2 billion, combining two regional lending powerhouses to create
the sixth-largest U.S. retail bank and end a decadelong drought in
big bank mergers.
The all-stock deal is the largest U.S. bank merger since the
financial crisis ushered in a stricter regulatory regime that kept
banks on the sidelines of recent deal-making booms. Bank rules have
loosened considerably following President Trump's 2016 election,
leading some to predict a flood of consolidations among smaller
banks.
The merger of BB&T and SunTrust could be the deal that opens
the spigot. Regional lenders are struggling to compete with big
national banks such as JPMorgan Chase & Co. and Bank of America
Corp., which are attracting a greater share of new checking
accounts from customers that are drawn to their digital
offerings.
Deposit growth at many small and midsize banks has faltered,
threatening a key source of funding. BB&T's deposits were up 2%
in the fourth quarter from a year earlier, while SunTrust's were up
1%.
Technology was the main impetus for the deal, executives for
BB&T and SunTrust said Thursday. Pooling their resources will
allow the companies to develop better digital offerings together
than they could on their own, they said, making the combined bank
more attractive to potential customers.
"The world is changing and we have to change," BB&T Chief
Executive Kelly King said in an interview.
Mr. King, 70, will be the first CEO of the new firm. SunTrust
CEO William Rogers Jr., 61, will serve as president and operating
chief of the combined company following the deal and will become
CEO after Mr. King steps down in 2021. The combined bank, which
hasn't been named yet, will be based in Charlotte, N.C., home to
Bank of America and a large Wells Fargo & Co. hub.
The merger brings together two banks with long histories in the
South. Winston-Salem, N.C.-based BB&T has a quirky culture that
encourages employees to keep gratitude journals.
SunTrust has deep ties to its home base of Atlanta. Its name
graces the Atlanta Braves' new baseball stadium. From 1925 to 2011,
one of its vaults held fellow Atlanta resident Coca-Cola Co.'s most
prized possession: the secret Coke formula.
The deal is likely to lead to branch closures throughout the
Southeast. BB&T and SunTrust, which have more than 3,100
branches all told and about 740 within 2 miles of each other, both
have been shuttering locations as customers migrate to digital
offerings. SunTrust shareholders will get 1.295 BB&T shares for
each SunTrust share owned, a 7% premium to SunTrust shareholders
based on Wednesday's closing price. SunTrust shares rose 10%
Thursday, while BB&T shares were up about 4%.
It is the largest U.S. bank merger since JPMorgan's 2004
purchase of Bank One Corp. Bank of America Corp.'s crisis-era
purchase of Merrill Lynch & Co. was worth more when it was
announced, but its value plummeted before the deal closed.
Bank deals of the scope seen before and during the financial
crisis have disappeared and are unlikely to return soon. The
largest national banks are effectively barred from merging because
of their size, leaving potential deal-making to small and regional
lenders.
Smaller banks have been the biggest beneficiaries of bipartisan
legislation to ease banking rules and a lighter touch from
regulators under the Trump administration.
The Federal Reserve late last year announced a big rollback of
bank rules for regional banks, loosening capital and liquidity
requirements for lenders with assets in the $250 billion to $700
billion range.
Some 129 U.S. banks had assets in the $10 billion to $250
billion range in the third quarter of 2018, according to the
Federal Deposit Insurance Corp. Just nine had assets above $250
billion.
BB&T had $225.7 billion in assets at the end of 2018, while
SunTrust had $215.5 billion. The banks expect the merger to close
in the fourth quarter and project it will produce some $1.6 billion
in annual cost cuts by 2022.
"I think the green light for this deal was the relaxation of the
regulatory rules," said Piper Jaffray & Co. senior research
analyst Kevin Barker. But "time will tell" whether the deal works,
he said, adding that the firms have to address cultural issues and
make sure valuable employees don't leave.
The timing of the announcement is a sign of the more favorable
regulatory environment.
BB&T is currently operating under an agreement with the Fed
to improve its anti-money-laundering controls, a situation that
likely would have prevented such a deal from moving forward under
the Obama administration. Mr. King said BB&T is in the "very
final stages" of getting the order lifted, and he doesn't expect it
to get in the way of the required regulatory approvals.
Rep. Maxine Waters (D, Calif.), a tough critic of banks who
recently became the chairwoman of the House Committee on Financial
Services, said she would be examining the deal closely. "The
proposed merger raises many questions and deserves serious scrutiny
from banking regulators, Congress and the public to determine its
impact and whether it would create a public benefit for consumers,"
she said in a statement.
Until recently, Messrs. Rogers and King had touted plans to grow
the banks on their own. But the two executives, who have known each
other for years, concluded that a combination was the best way for
both banks to adapt to the rapidly changing business.
It wasn't an easy decision, Mr. King said. "I woke up in the
middle of the night thinking of Alpheus Branch turning in his
grave," he said, referring to one of founders of BB&T, whose
last name has always been reflected in the bank's name. "It's not
about looking backwards, it's about looking forwards."
Write to Rachel Louise Ensign at rachel.ensign@wsj.com and
Allison Prang at allison.prang@wsj.com
(END) Dow Jones Newswires
February 07, 2019 18:49 ET (23:49 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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